showCASE No 20 | 20.03.2017 www.case-research.eu
showCASE No 20 | 20.03.2017
The Dutch dam against populism
By: Krzysztof Głowacki, Economist, CASE
The Dutch parliamentary elections were widely perceived as a litmus test for the populist sentiment in Europe ahead of
similar ballots in France and Germany later this year. If this perception is correct, the anti-establishment trend may just
have reversed itself.
In the election on March 15, the ruling conservative-liberal People's Party for Freedom and Democracy, VVD, won (21%)
ahead of Geert Wilders’s populist Party for Freedom, PVV (13%). As many as eleven other parties also made it into
parliament, including Christian democrats, social liberals, socialists, and the greens. The elections had a turnout rate of
81%, an impressive result even for the Netherlands, where civic engagement is traditionally high.
Media in the Netherlands and in Europe stress the symbolism of the victory of the incumbent Prime Minister Mark
Rutte over PVV’s populist Geert Wilders, who had long led in the polls. In anticipation of the election, Rutte was able
to skillfully handle popular concerns without falling into the populist trap. For example, he reaffirmed his commitment
to advocating “Dutch values” in an open letter published in the country’s major newspapers, and resolutely managed
the recent diplomatic conflict with Turkey. While Rutte faced charges of lapsing into populism himself, his rhetorical
concessions were matched by an emphasis on
the party’s traditional conservative liberal
agenda. Nowhere was this more visible than
in the successful defense of the ratification of
the EU Association Agreement with Ukraine,
which required much political maneuvering as
well as some compromises in the wording of
the document.
A former Unilever employee, Rutte has served
as the nation’s Prime Minister for two
consecutive terms since 2010. Both cabinets
Overview: In this week’s showCASE, our experts discuss the results of the recent Dutch elections and assess what it
could mean for the country. CASE also looks at latest developments in world oil markets to gain a sense of what the
market structure could look like moving forward, particularly with respect to volatility.
Source: http://www.ad.nl/verkiezingen/bekijk-hier-de-uitslagen-landelijk-of-per-
gemeente~aa11d305/
showCASE No 20 | 20.03.2017 www.case-research.eu
were committed to pulling the country from crisis (which caused GDP shrinkage of 3.8% in 2009, 1.1% in 2012 and 0.2%
in 2013) and consolidating public finances in line with EU recommendations. Rutte’s political affiliation, sustained
tenure, and self-proclaimed commitment to “gradual improvement” in lieu of a violent change bear semblance to other
dynastic rules of the European right-centrists, such as Germany’s Merkel (since 2005) and Poland’s Tusk (from 2007 to
2014). As in their previous terms, VVD will now have to find coalition parties to form a cabinet with, and the list of
potential partners does not include PVV. In fact, prior to the election, all the major parties pledged not to form any kind
of coalition with PVV because of Wilders’s extremist leanings.
In the coming term, VVD plans to ease tax and
social contributions burdens for households,
especially middle-income earners, introduce
cuts in social security, and bring down the CIT
rate for small enterprises from 20% to 17%.
These changes are expected to increase
employability and encourage consumption,
providing a much-needed stimulus to the
economy after years of belt-tightening. At the
same time, fiscal policy will remain prudent,
with cuts in social security (2.7 billion euro) and
international cooperation (the same amount) outweighing extra expenditure in defense (1 billion euro) and state
security (0.7 billion euro). All in all, VVD’s program appears to be the most sound economically compared to the other
parties they defeated, not least of all PVV’s 18-word long dissertation.
As a vast alluvial plain, the Netherlands are always vulnerable to flooding. Over the centuries, the Dutch have developed
ways to ensure that their country is not swept away by the tides, and it appears they may have just utilized these
techniques politically to resist the populist wave covering much of Europe.
Source: Reuters
showCASE No 20 | 20.03.2017 www.case-research.eu
The World Oil Market: Towards Persistent yet Small-scale Volatility?
By: Iakov Frizis, Economist, CASE
Last week, oil prices fell by 10% as news regarding stronger-than-expected North American production echoed across
international markets. This news only added to the recent uptick in oil price volatility.
Between September 2016 and January 2017, the
international oil market experienced a brief period of
reduced volatility. Expectations of output cuts by
OPEC countries (and Russia) led to reduced expected
supply of crude. A future outlook of higher prices
coupled with relatively higher demand (as the world
economy recovers from a period of sluggish growth)
pushed the price of crude above $50 per barrel and
flattened the market’s contango structure. However,
that proved to be a short-lived equilibrium. Increasing
doubts to whether or not OPEC will be able to sufficiently curb world output, given higher than expected US-based
production, motivated an upward revision of future output expectations.
The rise of the US as the world’s top oil producing country, according to estimates of existing fields and future
discoveries, coupled with the country’s positioning as the greatest oil consumer and the sector’s output transparency
(in terms of data), lends an outsized influence over the market. This is showcased by the ripple effects caused on the
world oil market by the US Information Administration’s upward revision of output expectations for the near future –
an increase of 300,000 barrels a day (b/d) for 2017 (reaching a total of 9.2 m b/d), followed by a further increase of
500,000 b/d in 2018.
That is not to say that the US shale sector
has the capacity to set the price of crude by
determining world supply (given current
demand) as the Saudi Arabia used to do, in
the period following the demise of the 7
sisters. Although, by assuming a leading role
in determining the upper cap of the price of
crude, it limits OPEC’s price setting capacity
to only determining the lower cap (through
Source: Reuters
OPEC reaches agreement
Source: Yahoo Finance
showCASE No 20 | 20.03.2017 www.case-research.eu
OPEC’s capacity to flood the market). This outcome is the result of the recent price wars between the US shale
producers and OPEC. Consolidation in the US shale industry led to significant efficiency gains, resulting in a current
output level that is less responsive to price changes. This divorces the commodity from OPEC’s monopolistic control,
introducing a new normal of heightened price volatility.
However, extreme uncertainty involving the oil price surging up to $100 per barrel and then plummeting down to $50
per barrel is not in the cards for the near future. Saudi Arabia appears determined enough to protect the OPEC
agreement, if not extend it, in anticipation of ARAMCO’s IPO. Moreover, demand for oil is not to peak before mid-2020s
to late-2030s, according to estimates of Royal Dutch and Statoil (the International Energy Agency sets peak oil in 2040s).
This suggests that the international oil market is moving towards a less constricted structure of supply determination,
meaning small-scale price volatility instead of wild swings.
showCASE No 20 | 20.03.2017 www.case-research.eu
This week: According to the OECD’s Interim Economic Outlook, released on March 7, 2017,
growth is set to remain solid in Germany over the coming year. In the publication, OECD
experts upgrade their 2017 GDP forecast by 0.1 p.p over their November forecasts, which
leaves overall 2017 GDP growth expectations at 1.8% y/y.
. GDP (Q4 2016)
1.2% y/y
Down from 1.5% in Q3
Unemployment (Q3 2016)
4.2%
Down from 4.28% in Q2
Inflation (Jan 2017)
2.2% y/y
Up from 1.9% in Jan
ECB Deposit rate
-0.4%
From -0.3% Dec 2015
This week: Russia remains active in engaging its Asian partners. First, according to the Russian
Energy Minister, an FTA between the EEU and Iran is expected to be signed before the end of
the month. Moreover, Russia appointed a special representative to negotiate an economic
cooperation proposal with Japan and a joint fund of US$1 bn is being negotiated with India to
attract investment.
GDP (Q3 2016)
-0.4% y/y
Up from -0.6 in Q2
Unemployment (Jan 2017)
5.6%
Up from 5.3% in Dec
Inflation (Feb 2017)
4.6% y/y
Down from 5.0% in Jan
CBR Base rate
10%
This week: Polish media has started discussion of a potential 10,000+ program: pay bonuses
of around PLN 10,000 for 2 year retirement delays. However, Minister Morawiecki indicates
that these are only rumors, claiming there is no official program yet. According to data
released by the Central Statistics Office, January goods exports increased by 9.4% y/y and
imports by 10.7% y/y (at current prices).
GDP (Q4 2016)
2.7% y/y
Up from 2.5% in Q3
Unemployment (Jan 2017)
8.6%
Up from 8.3% Dec 2016
Inflation (Feb 2017)
2.2% y/y
Up from 1.8% in Jan
NPB Base rate
1.5%
From 2% March 2015
Countries at a glance
showCASE No 20 | 20.03.2017 www.case-research.eu
This week: On March 16, Ukraine’s President, Petro Poroshenko, signed a decree to prohibit
the Ukrainian branches of a number of Russian banks from transferring capital abroad: BM
Bank, Prominvestbank, Sberbank, VTB Bank, and VS Bank. The restriction is motivated on the
grounds of customer protection, but has been linked to Sberbank’s recognition of identity
documents issued by the separatists in the Donbas region of Ukraine.
GDP (Q4 2016)
4.7% y/y
Up from 2.1% in Q3
Unemployment (Q3 2016)
9.2%
Down from 9.3% in Q2
Inflation (Feb 2017)
14.2% y/y
Up from 12.6% in Jan
NBU Base rate
14%
Unchanged from Jan 2016
This week: In 2016, principally driven by the country’s primary income deficit, current account
surplus in Czech Republic dropped to 1.1% of GDP, while surplus of goods and services rose to
7.5% of GDP. Moreover, this week the Czech Central bank hinted that over the coming months
(April/May) it intends to remove its upper cap on the currency in response to rising inflation.
GDP (Q4 2016)
1.9% y/y
1.9% in Q3
Unemployment (Q4 2016)
3.6%
Down from 4.0% in Q3
Inflation (Feb 2017)
2.5% y/y
Up from 2.2% in Jan
CNB Base rate
0.5%
Unchanged since Nov 2012
This week: In their most recent Article IV consultation, released on March 9th, IMF Staff
highlight Hungary’s “high economic growth” over past years and point towards a favorable
medium-term outlook. However, Staff conclude that additional fiscal measures, such as
leveraging high economic growth to advance growth-friendly consolidation, will be needed.
GDP (Q4 2016)
1.6% y/y
Down from 2.2% in Q3
Unemployment (Q4 2016)
4.4%
Down from 4.9% in Q3
Inflation (Feb 2017)
2.9% y/y
Up from 2.3% in Jan
MNB Base rate
0.9%
From 1.05% May 2016
Countries at a glance
Contributions: Krzysztof Głowacki, Paul Lirette, Katarzyna Mirecka, Katarzyna Sidło, Iakov Frizis, Jan Toczyński Editor: Paul Lirette, Editor-in-chief: Christopher Hartwell
CASE economic forecasts for the Polish economy (average % change on previous calendar year, unless otherwise indicated)
GDP
Private consumption
Gross fixed investment
Industrial production
Consumer prices
2017 2.9 3.2 2.0 3.5 0.5
2018 2.9 3.0 2.7 3.7 1.0
Nominal monthly wages
Merchandise exports
(USD, bn)
Merchandise imports
(USD, bn)
Merchandise trade balance
(USD, bn)
CA balance (USD, bn)
2017 4.1 201.6 201.8 -0.2 -4.7
2018 3.5 211.3 213.1 -1.8 -5.9
The weekly online CASE CPI
The online CASE CPI is an innovative measurement of price dynamics in the Polish economy, which is entirely based
on online data. The index is constructed by averaging prices of commodities from the last four weeks and comparing
them to average prices of the same commodities from four weeks prior. The index is updated weekly.
Monthly CASE forecasts for the Polish economy
Every month, CASE experts estimate a range of variables for the Polish economy, including future growth, private
consumption, and foreign trade, current account balance, CPI, among others.
For more information on our weekly online CASE CPI, please visit: http://case-research.eu/en/online-case-cpi To subscribe to our weekly showCASE newsletter, please visit: http://case-research.eu/en/showcase
Other CASE products
Our weekly online CASE CPI
Online CASE CPI ( ) vs GUS CPI ( )